<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from __________ to __________
COMMISSION FILE NUMBER: 0-16753
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 58-1722085
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
130 CEDAR STREET, FOURTH FLOOR, NEW YORK, NY 10006
(Address of Principal Executive Offices) (Zip Code)
(212) 306-6100
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
AS OF FEBRUARY 13, 1998, THE REGISTRANT HAD OUTSTANDING 5,579,552 SHARES
OF CLASS A COMMON STOCK.
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS 1
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 13
CONDITION AND RESULTS OF OPERATIONS
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 20
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 22
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. INDEX TO FINANCIAL STATEMENTS
PAGE
BALANCE SHEETS AS OF DECEMBER 31, 1997 AND MARCH 31, 1997 2
Statements of Operations for the Three Months and Nine
Months Ended December 31, 1997 and 1996 4
Statements of Cash Flows for the Nine Months Ended
December 31, 1997 and 1996 5
Notes to Financial Statements 6
1
<PAGE>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
------------------ ------------------
December 31, March 31,
1997 1997
------------------ ------------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 675,262 $ 1,228,819
Accounts receivable, net of allowance for doubtful
accounts of $79,200 at December 31, 1997 and
$36,800 at March 31, 1997 1,518,565 1,331,428
Inventory 444,817 281,729
Note receivable - related party 56,773 54,886
Prepaid expenses and other current assets 693,002 590,224
--------------- ----------------
Total current assets 3,388,419 3,487,086
PROPERTY AND EQUIPMENT - AT COST
Production equipment 2,955,863 2,548,699
Software 426,598 242,932
Furniture and fixtures 359,490 459,696
Leasehold improvements 675,818 609,888
Computer equipment 706,127 806,066
--------------- ----------------
5,123,896 4,667,281
Less: Accumulated depreciation and amortization 2,135,385 2,065,833
--------------- ----------------
Net property and equipment 2,988,511 2,601,448
--------------- ----------------
OTHER ASSETS
Note receivable - related party 170,873 195,114
Deposits and other assets 401,837 364,405
Investment in INSCI Corp. 1,032,818 1,782,108
--------------- ----------------
Total other assets 1,605,528 2,341,627
--------------- ----------------
TOTAL ASSETS $ 7,982,458 $ 8,430,161
=============== ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
2
<PAGE>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
BALANCE SHEETS (CONCLUDED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
---------------- --------------
December 31, March 31,
1997 1997
---------------- --------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Current debt $ 380,000 $ 380,000
Loan payable - bank 624,941 -
Current maturities of long-term debt 285,862 288,329
Current maturities of long-term capital lease obligations 203,249 280,878
Accounts payable 1,564,891 1,479,166
Accrued salaries 91,767 157,820
Other accrued liabilities 921,705 684,221
--------------- ---------------
Total current liabilities 4,072,415 3,270,414
LONG-TERM DEBT, LESS CURRENT MATURITIES 874,729 900,000
CAPITAL LEASE OBLIGATIONS, LESS CURRENT MATURITIES 311,899 213,002
DEFERRED RENT 370,933 382,677
--------------- ---------------
Total long-term liabilities 1,557,561 1,495,679
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
12% Preferred Stock - authorized 3,000,000 shares at
$1.00 par value; 2,727,240 shares issued and
outstanding at December 31, 1997 and 2,534,100 at March 31, 1997 2,727,240 2,534,100
Class A common stock - authorized 100,000,000 shares
at $.04 par value; 5,579,552 shares issued and
outstanding at December 31, 1997 and March 31, 1997 223,182 223,182
Additional paid-in capital 31,972,921 31,528,477
Unrealized gain from investment in securities available
for sale 1,032,818 1,774,515
Accumulated deficit (33,603,679) (32,396,206)
--------------- ---------------
Total stockholders' equity 2,352,482 3,664,068
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,982,458 $ 8,430,161
=============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
<PAGE>
<TABLE>
<CAPTION>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
---------------------------- ----------------------------
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 2,553,116 $ 2,626,573 $ 7,215,462 $ 8,049,613
Cost of sales 1,569,357 2,238,877 5,281,416 6,380,876
------------ ------------ ------------ -----------
Gross profit 983,759 387,696 1,934,046 1,668,737
Operating expenses:
Selling, general and administrative
expenses 1,264,859 908,046 2,567,707 2,480,714
Other costs - 550,000 - 550,000
------------ ------------ ------------ ------------
Total operating expenses 1,264,859 1,458,046 2,567,707 3,030,714
------------ ------------ ------------ ------------
Loss from operations (281,100) (1,070,350) (633,661) (1,361,977)
Other (income) expenses:
Interest expense, net 152,610 102,920 370,153 303,480
Interest - beneficial conversion
attached to convertible debt - - 444,444 -
Gain from the sale of INSCI Corp.
stock (181,555) - (240,785) (2,078,661)
Equity in net loss of INSCI Corp. - - - 341,140
------------ ------------ ------------ ------------
Net other (income)
expense (28,945) 102,920 573,812 (1,434,041)
------------ ------------ ------------ ------------
Net income (loss) $ (252,155) $(1,173,270) $(1,207,473) $ 72,064
============ ============ ============ ============
Earnings (loss) per share $ (0.05) $ (0.21) $ (0.22) $ 0.01
============ ============ ============ ============
Weighted average number of shares
outstanding 5,579,552 5,011,500 5,579,552 5,011,500
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
<PAGE>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------
Nine Months Ended
December 31,
-------------------------------------
1997 1996
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (1,207,473) $ 72,064
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 383,040 301,114
Amortization of consulting fees 57,500 -
Amortization of beneficial conversion feature related
to convertible debt 444,444 -
Preferred stock issued to pay preferred dividends 193,140 -
Equity in net loss of INSCI Corp. - 341,140
Gain from sale of INSCI Corp. stock (240,785) (2,078,661)
Provision for doubtful accounts 51,183 33,907
Deferred rent (11,744) -
Changes in assets and liabilities:
Accounts receivable (238,319) (191,751)
Inventory (163,088) (101,713)
Prepaid expenses and other current assets,
deposits and other (197,710) 260,793
Accounts payable, accrued expenses and other
current liabilities 537,293 (750,978)
------------- --------------
Net cash used in operating activities (392,519) (2,114,085)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (510,799) (409,261)
Repayments from loan to related party 22,354 -
Proceeds from the sale of INSCI Corp. stock 279,932 2,457,718
------------- --------------
Net cash (used in) provided by
investing activities (208,513) 2,048,457
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under bank credit facility 624,941 (640,056)
Net proceeds from issuance of long-term debt 90,000 -
Payments of capital lease obligations (238,036) (205,669)
Proceeds from equity placements and option exercises - 172,602
Repayments of long-term debt (429,430) (431,975)
------------- --------------
Net cash provided by (used in)
financing activities 47,475 (1,105,098)
------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (553,557) (1,170,726)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,228,819 2,011,560
------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 675,262 840,834
============= ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
<PAGE>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
THE COMPANY
Information Management Technologies Corporation (referred to as "IMTECH"
or the "Company") was incorporated in 1986 in the State of Delaware. The
Company provides information processing and facilities management services to
financial, legal, accounting and other medium to large service organizations
which operate in business environments that are characterized by substantial
information processing, communications and document administration requirements.
The Company's customer base is principally located in New York City and the
surrounding metropolitan area, such as New Jersey, Southeast Connecticut and
Westchester County. The Company also services clients in Pennsylvania, the
midwest and in Europe, as a result of strategic alliances with two New York
based service providers. The alliances allow IMTECH to offer its clients a
smooth process of receiving and managing data for print production and
subsequent distribution.
At December 31, 1997, the Company holds a 11% ownership interest in INSCI
Corp. ("INSCI") , a Massachusetts based developer of software. At December 31,
1996, the Company held a 18% ownership interest in INSCI. The investment in
INSCI was accounted for under the equity method through the period when the
Company owned more than 20% of the common stock in INSCI. When the Company's
investment in INSCI decreased below 20% the investment in INSCI was accounted
for under the "Securities Available For Sale" method as promulgated by Statement
of Financial Accounting Standards ("SFAS") No. 115.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") established
for interim financial information and Form 10-Q and Article 10 of Regulation S-
X. Accordingly, they do not include all of the information and disclosures
required by GAAP for complete financial statements. Management believes however
that all of the adjustments considered necessary for a fair presentation have
been included. Operating results for the nine months ended December 31, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ended March 31, 1998. For further information, refer to the
financial statements and disclosures thereto included in the Company's annual
report on Form 10-K for the year ended March 31, 1997.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies that have
been applied on a consistent basis in the preparation of the accompanying
financial statements:
1. REVENUE RECOGNITION
Revenue is recorded when services are performed or upon delivery of the
product.
2. CASH AND CASH EQUIVALENTS
For the purposes of reporting cash flows (presented under the indirect
method), the Company considers all highly liquid investments with
insignificant interest rate risk and an original maturity of three months
or less to be cash equivalents. The cash equivalents are carried at cost
which approximates fair value. At December 31, 1997, cash equivalents
included funds deposited in a liquid asset fund with a financial
institution.
6
<PAGE>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2. CASH AND CASH EQUIVALENTS (CONTINUED)
In addition, at December 31, 1997, cash and cash equivalents includes a
certificate of deposit in the amount of $504,270 held with a financial
institution, and is maintained as security for the Company's obligation
under an operating lease for certain production equipment.
3. INVENTORY
Inventory consists primarily of paper, toner and inks, and is stated at the
lower of cost (determined by the first-in, first-out method) or market.
4. PROPERTY AND EQUIPMENT
Depreciation of capital assets is provided to relate the cost of the
depreciable assets to operations over their estimated useful service lives.
In that connection, production equipment, computer hardware and software
and furniture and fixtures are depreciated by the straight-line method over
estimated useful lives ranging from five to seven years. Leasehold
improvements are amortized by the straight-line method over the lesser of
the remaining lease term or estimated useful lives of the improvements.
Major additions and betterments are capitalized and repairs and maintenance
are charged to operations in the period incurred. At the time of disposal
or retirement of any property and equipment, the cost and accumulated
depreciation or amortization are removed from the accounts and any
resulting gain or loss is recognized in the current period's earnings.
5. DEFERRED FINANCING COSTS
Costs incurred to secure financing arrangements are included in deposits
and other assets in the balance sheets. The costs are amortized over the
life of the related credit facilities, which range from 24 to 110 months.
6. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable.
The Company maintains cash balances at various banks and places its
temporary cash investments in a liquid asset fund with one financial
institution. Accounts at the banks and financial institution are insured
by the Federal Deposit Insurance Corporation (FDIC) and the Securities
Investor Protection Corporation (SIPC) up to $100,000 and $500,000,
respectively.
The Company performs ongoing credit evaluations of its customers and
records reserves for potentially uncollectible accounts receivable which
are deemed credit risks as determined by management. Accounts receivable
consist of geographically and industry dispersed customers.
7
<PAGE>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
7. USE OF ESTIMATES
The preparation of the accompanying financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period. Actual results could
differ from those estimates.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, trade receivables and
payables and debt instruments. The carrying amount of cash and short-term
instruments approximates their fair values because of the relatively short
period of time between the origination of the instruments and their
expected realization. The carrying amount of the debt is based on the
current market interest rates being paid, and as a result, it approximates
fair value.
9. IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of an
asset may be impaired, an evaluation of recoverability would be performed.
If an evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market or discounted cash flow value is
required. No such write-downs were required for the nine months ended
December 31, 1997.
10. ACCOUNTING FOR STOCK OPTIONS
The Company accounts for its stock option plans in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which permits entities to
recognize as expense over the vesting period the fair value of all stock-
based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of Accounting Principles
Board ("APB") Opinion No. 25 and provide pro forma net income (loss) and
pro forma earnings (loss) per share disclosures for employee stock option
grants made from 1995 forward as if the fair-valued-based method defined
in SFAS No. 123 had been applied. APB Opinion No. 25 requires that
compensation expense be recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price. The
Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
11. CONVERTIBLE DEBT
The beneficial conversion feature of certain outstanding convertible
securities is accounted for as additional interest to the holders and
amortized over the period from the date of issue through the date the
securities first become convertible. This policy conforms to the
accounting for these transactions announced by the Securities and Exchange
Commission ('SEC") Staff in March 1997.
8
<PAGE>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
INVESTMENT IN INSCI CORP.
The Company holds an 11% ownership interest in INSCI, its former
majority-owned subsidiary. As of December 31, 1997, the carrying value and
estimated fair market value of the Company's investment in INSCI is as follows:
Cost Basis Market Value Unrealized Gain
Investment in INSCI
Corp. (486,032 shares) $ - $ 1,032,818 $ 1,032,818
The investment is accounted for under the "Securities Available For Sale" method
as promulgated by SFAS No. 115. As a result, the investment is carried at fair
market value. During the second quarter of fiscal year 1997, the Company sold
703,000 shares of INSCI Corp. stock. Prior to that sale, IMTECH owned a 38%
interest in INSCI, whose results were accounted for under the equity method. At
December 31, 1997, 500,000 shares of the INSCI stock are pledged as collateral
for the outstanding 12% convertible secured promissory notes issued in
connection with the February 1997 private placement offering of $1,000,000.
However, the Company has the right to receive the return of 100,000 shares of
the pledged stock in the event it becomes required in order for IMTECH to sell
the shares for a source of working capital.
LOAN PAYABLE - BANK
In November 1997, IMTECH (the "Company") entered into a two year secured
credit arrangement with MTB Bank (the "Bank"). Under the credit arrangement,
the Company can borrow up to 80% of eligible accounts receivable and 35% of
eligible paper inventory (up to a maximum of $50,000), both of which in the
aggregate cannot exceed a total of $1,500,000 (including $250,000 in outstanding
letters of credit) at any one time. All outstanding obligations under the
arrangement bear interest at the banks prime rate plus two percent (2%). At
December 31, 1997, the Company was indebted to the Bank for outstanding
obligations totaling approximately $625,000. In conjunction with the execution
of the credit arrangement, the Company entered into a security agreement which
grants the Bank a security interest in substantially all of the assets of IMTECH
as collateral for all indebtedness outstanding under the arrangement. The
credit arrangement contains a minimum tangible net worth covenant of $2,200,000.
In addition to the collateral secured as part of the security agreement, the
Company also pledged 66,535 shares of INSCI Corp. common stock to secure payment
of all outstanding obligations under the credit arrangement. In connection with
the closing of the credit arrangement, the Company issued a warrant to the Bank
which entitles MTB to purchase 25,000 shares of Class A Common stock at $1.81
per share (the market price of the underlying shares on the date of closing),
exercisable until November 2000.
9
<PAGE>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
EARNINGS (LOSS) PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". Under SFAS No. 128 public
companies and entities with complex capital structures are required to present
basic and diluted EPS on the face of the income statement. SFAS No. 128
replaces the presentation of primary EPS with a presentation of basic EPS and,
if applicable, diluted EPS. Basic EPS excludes dilution and is computed by
dividing income available to Class A Common stockholders by the weighted-average
number of Class A Common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue Class A Common stock were exercised or converted and the
resulting additional shares are dilutive (their inclusion decreases the amount
of EPS). The effect on earnings (loss) per share of outstanding stock options
and warrants is antidilutive and therefore not included in the calculation of
the weighted-average number of Class A Common shares outstanding.
CONTINGENCIES
EMPLOYEE BENEFIT PLANS
In January 1994, the Company received correspondence from the United States
Department of Labor (the "DOL") stating their intent to penalize the Company in
connection with an investigation of past IMTECH employee benefit plans (prior to
April 1, 1992). The DOL concluded that for certain plan years the Company did
not file the proper financial information required. In October 1997, the DOL
assessed the Company with a penalty of $25,000 as a result of their findings.
The penalty which is payable, without interest, in twelve monthly installments
of $2,083, through November 1998 is included in accrued liabilities on the
balance sheet as of December 31, 1997.
REGISTRATION RIGHTS
The Company has granted, without cost, demand and "piggyback" registration
rights with respect to the stock underlying securities issued or issuable to the
holders of certain outstanding warrants and shares of the Company.
EMPLOYMENT AGREEMENTS
In December 1996, the Board of Directors appointed Matti Kon as the
Company's Chief Executive Officer. Consequently, the Company entered into an
employment agreement with Mr. Kon which provides for a base annual salary of
$200,000 plus an incentive bonus equal to 20% of operating income as reported in
the annual 10-K document, up to a maximum of $500,000. The agreement had an
initial one year term and awarded Mr. Kon 500,000 options to purchase 500,000
shares of the Company's Class A common stock at an exercise price of $1.18 per
share as a signing bonus. In the event the employment agreement is renewed for
an additional one year term, Mr. Kon will be entitled to receive an additional
500,000 options to purchase 500,000 shares of Class A common stock at his
original exercise price. The agreement further provides that Mr. Kon has the
right to devote his time and attention to his other business interests. In
January 1998, the Board of Directors elected to renew Mr. Kon's contract for an
additional two year period through December 1999. Consequently, Mr. Kon was
awarded the additional 500,000 options to purchase 500,000 shares of the
Company's Class A Common stock at $1.18 per share.
10
<PAGE>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENTS (CONTINUED)
The Company has entered into an employment agreement with Mr. Joseph Gitto,
its President and Chief Financial Officer. The agreement, as amended in July
1997, has an initial one year term and provides for an annual base salary of
$180,000. In addition, Mr. Gitto is entitled to an incentive bonus equal to 15%
of operating income as reported in the annual 10-K document, up to a maximum of
$150,000, and has been awarded 600,000 options to purchase 600,000 shares of the
Company's Class A Common stock at exercise prices ranging from $1.25 to $1.88
per share.
OTHER
In November 1995, the Company entered into a three year service agreement
with Corporate Relations Group, Inc. ("CRG"), whereby CRG was to provide IMTECH
with promotional and brokerage communication services related to the marketing
of the Company's stock. As consideration for their services, IMTECH was to pay
CRG the sum of $300,000 or 171,000 shares of the Company's free trading Class A
common stock plus 500,000 options to purchase 500,000 shares of Class A common
stock at exercise prices ranging from $1.75 to $3.06 per share for a period of
five years.
The Company elected to pay CRG by issuing 171,000 shares of Class A common
stock. The Company made an initial payment to CRG of 92,250 shares of freely
traded Class A common stock which IMTECH borrowed from a number of shareholders.
The Company agreed to repay the shareholders by making interest payments at a
rate of 10% per annum in addition to returning the borrowed shares plus one
additional share of Class A common stock for each ten shares of borrowed stock
(an aggregate of 9,250 additional shares). The Company further agreed to grant
cost free registration rights to each lender for the additional shares as a
result of the loan transaction. The balance of the 78,750 shares was not
remitted to CRG. CRG asserted a claim for the balance of the shares. The
Company has disputed the claim based upon the position that CRG did not perform
under the provisions of the service contract. The Company is currently
considering instituting legal action, in the state of Florida based upon the
jurisdiction which was recited in the agreement, to recover the shares of stock
and to seek punitive damages from CRG.
SUBSEQUENT EVENTS
On January 30, 1998, the Company appointed Ms. Dale L. Hirschman and Mr.
Kenneth J. Buettner as members of the Board of Directors (the "Board") of
IMTECH.
Ms. Hirschman, who is currently a management consultant with a Company called DH
Management/CAL Consulting Group, is also active in raising capital for private
companies through private placements and has an extensive background in
publishing with companies such as Hearst Business Publishing, Inc. and
Scholastic, Inc. Upon her appointment, Ms. Hirschman was awarded 100,000
options to purchase 100,000 shares of IMTECH Class A Common stock at a per share
price of $.74.
11
<PAGE>
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
SUBSEQUENT EVENTS (CONTINUED)
Mr. Buettner is an executive and principal in a Company called York Scaffold
Equipment Corp. He has also served on the Board of numerous trade associations
and task forces. Mr. Buettner is currently an executive committee member of the
State Insurance Fund of NY Construction Industry Safety Group No. 469. Mr.
Buettner was also awarded 100,000 options to purchase 100,000 shares of the
Company's Class A Common stock at $.74 per share.
In January 1998, the Company redeemed $380,000 of 12% subordinated
convertible debentures issued in connection with a January 1996 private
placement.
Also in January 1998, the Company received proceeds for working capital
purposes in the amount of $200,000 as a result of loan from an individual who
performs consulting services for IMTECH, and is also a member of the Board of
Directors. The loan , which is unsecured, bears interest at a per annum rate of
12% and is payable in specific monthly installments through July 1998 as
stipulated in the promissory note evidencing the loan. In addition, in January
1998, the Company sold to the same individual 50,000 shares of INSCI Corp.
common stock for proceeds of $50,000, also used for working capital purposes.
On December 23, 1997, the Company filed a Form S-3 Registration Statement
in accordance with the Securities Act of 1933, which an amendment thereto was
subsequently filed on January 14, 1998. The statement covers the subsequent
resale or offer for sale of all of the Company's outstanding Class A Common
stock (not eligible under Rule 144) and all other shares issuable upon exercise
or conversion of certain options, warrants, convertible debt and preferred
stock.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS
The following schedule sets forth the percentage relationship of
significant items of the Company's results of operations to revenues:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of sales 61 85 73 79
Gross profit 39 15 27 21
Operating expenses:
Selling, general
and administrative 50 35 36 31
Other costs - 21 - 7
Loss from operations (11) (41) (9) (17)
Other (income) expenses:
Interest expense, net 6 4 5 4
Interest on beneficial conversion of
12% convertible secured notes - - 6 -
Gain from sale of INSCI Corp. stock (7) - (3) (26)
Equity in net loss of INSCI Corp. - - - 4
Net other (income) expense (1) 4 8 (18)
Net income (loss) (10) (45)% (17) 1%
</TABLE>
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED 12/31/97 AS COMPARED TO THE THREE MONTHS ENDED 12/31/96
During the three months ended December 31, 1997, the Company reported
revenues of approximately $2,553,000; a decrease of $74,000 (or 3%) from
revenues of approximately $2,627,000 that were generated during the three months
ended December 31, 1996. The Company's Regional Service Center ("RSC") division
generated revenues of approximately $2,390,000 (which represented 94% of total
revenues for the period) for the three months ended December 31, 1997; an
increase of $134,000 (or 6%) when compared to revenues of approximately
$2,256,000 (86% of total 1996 revenue) reported for the three months ended
December 31, 1996. The increase in RSC revenues was a direct result of an
increase in the Company's core research printing business created by the
opportunity to provide printing services to ten new clients during the quarter
ended December 31, 1997. The Company's Facility Management division recorded
revenues of approximately $163,000 (6% of total revenues) for the three months
ended December 31, 1997, as compared to revenues of approximately $194,000 (7%
of total 1996 revenues) that were generated for the three months ended December
31, 1996.
Cost of sales for the three months ended December 31, 1997 amounted to
approximately $1,569,000 (61% of total revenues for the three months ended
December 31, 1997); a decrease of approximately $670,000 (or 30%) from cost of
sales of approximately $2,239,000 (85% of 1996 revenues) recorded for the three
months ended December 31, 1996. During the past twelve months, the IMTECH has
reduced it production staff and realized certain production cost efficiencies as
a result of management's investment in improving the Company's infrastructure.
As a result, production facilities have been stream-lined, resulting in an
overall savings in the Company's cost of providing its core printing services.
Operating expenses ("SG&A") expenses for the three months ended December
31, 1997 amounted to approximately $1,265,000 (which represents 50% of total
December 1997 revenues); an overall decrease in operating expenses of
approximately $193,000 (or 13%) when compared to operating expenses of
approximately $1,458,000 (56% of total 1996 revenues) reported for the three
months ended December 31, 1996. Operating expenses, in total, were higher for
the three months ended December 31, 1996 because of a one time charge of
$550,000 recorded by management in that period to account for costs incurred to
restructure IMTECH's work force and redeploy certain production assets.
Interest expense for the three months ended December 31, 1997 totaled
approximately $153,000 (6% of total revenues); an increase of approximately
$50,000 (or 48%) from interest expense recorded for the three months ended
December 31, 1996 of approximately $103,000 (4% of total 1996 revenues). The
increase in interest expense from 1997 to 1996 is attributable in part to the
acquisition by the Company of new high speed copying equipment obtained under
capital lease. In addition, the Company entered into a secured credit
arrangement with a bank during November 1997, whereby the Company can borrow up
to a specified amount of eligible accounts receivable and inventory. The
Company pays interest at a per annum rate of 2% above the prime rate on all
obligations due to the bank.
During the three months ended December 31, 1997, the Company sold 33,435
shares of stock in INSCI Corp., its former majority-owned subsidiary, realizing
a gain of $181,555 (7% of total revenues) for the period. The sale of INSCI
Corp. stock provided a source of funds for the Company to obtain certain
production equipment.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED 12/31/97 AS COMPARED TO THE NINE MONTHS ENDED 12/31/96
For the nine months ended December 31, 1997, IMTECH recorded revenues of
approximately $7,215,000; a decrease of approximately $834,000 (or 10%) from
revenues of approximately $8,050,000 generated for the nine months ended
December 31, 1996.
During the nine months ended December 31, 1997, the Company's RSC division
accounted for approximately $6,468,000 in revenues, which amounts to 90% of
total December 1997 revenues; a decrease of approximately $235,000 (or 4%) when
compared to RSC revenues of approximately $6,703,000 (83% of total 1996
revenues) reported for the nine months ended December 31, 1996. Revenues
generated from the Facilities Management division for the nine months ended
December 31, 1997 amounted to approximately $585,000 (8% of total revenues); a
decrease of approximately $104,000 (or 18%) from Facilities Management revenues
of approximately $689,000 (9% of total revenues) generated for the nine months
ended December 31, 1996. The Company's Litigation Duplication division reported
revenues of approximately $162,000 (2% of total revenues) for the nine months
ended December 31, 1997; a decrease of $496,000 from revenues reported during
the nine months ended December 31, 1996 of approximately $658,000 (which
represented 8% of total 1996 revenues). The overall decrease in revenues for
the nine months ended December 31, 1997 when compared to the same period in the
prior fiscal year is a result of management's decision to exit certain
unprofitable lines business. The decrease was partially offset by an increase
in the Company's core research printing business created by the opportunity to
provide printing services to ten new clients during the quarter ended December
31, 1997.
During the past year, IMTECH has reduced it production staff and realized
certain production cost efficiencies as a result of management's continuing
investment in the Company's infrastructure. As a result, production facilities
have been stream-lined, resulting in an overall savings in the Company's cost of
providing its core printing services. Consequently, cost of sales for the nine
months ended December 31, 1997 decreased $1,100,000 (or 17%) to approximately
$5,281,000 (73% of total revenues) from cost of sales of approximately
$6,381,000 (79% of total December 1996 revenues) reported for the nine months
ended December 31, 1996.
Operating expenses ("SG&A") expenses for the nine months ended December 31,
1997 amounted to approximately $2,568,000 (which represents 36% of total
December 1997 revenues); an overall decrease in operating expenses of
approximately $463,000 (or 18%) when compared to operating expenses of
approximately $3,031,000 (38% of total 1996 revenues) reported for the nine
months ended December 31, 1996. Operating expenses, in total, were higher for
the nine months ended December 31, 1996 because of a one time charge of $550,000
recorded by management in that period to account for costs incurred to
restructure IMTECH's work force and redeploy certain production assets.
Interest expense for the nine months ended December 31, 1997 amounted to
approximately $370,000 (5% of total revenues); an increase of approximately
$67,000 (or 22%) from interest expense recorded for the nine months ended
December 31, 1996 of approximately $303,000 (4% of total 1996 revenues). The
increase in interest expense from 1997 to 1996 is attributable in part to the
acquisition by the Company of new high speed copying equipment obtained under
capital lease. In addition, the Company entered into a secured credit
arrangement with a bank during November 1997, whereby the Company can borrow up
to a specified amount of eligible accounts receivable and inventory. The
Company pays interest at a per annum rate of 2% above the prime rate on all
obligations due to the bank.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED 12/31/97 AS COMPARED TO THE NINE MONTHS ENDED 12/31/96
(CONTINUED)
As a result of complying with the Securities and Exchange Commissions
("SEC") position of accounting for the beneficial conversion feature of debt
instruments announced in March of 1997, the Company recorded an additional
interest charge of approximately, $444,000 (6% of revenues) for the nine months
ended December 31, 1997. The additional interest charge, as it relates only to
the compliance of the SEC's position, and has no bearing on the operations of
the Company, represents the amortization of the conversion feature attached to
the 12% convertible secured promissory notes outstanding at December 31, 1997.
The interest is calculated as the difference between the conversion price and
the fair value of the common stock into which the notes are convertible.
In May 1997, the Company exchanged shares of stock in INSCI Corp.
("INSCI"), its former majority owned subsidiary, for the repayment of certain
debt. In addition, during fiscal quarter ended December 31, 1997, the IMTECH
sold 33,435 shares of stock in INSCI which provided a source of funds for the
Company to obtain certain production equipment. In the aggregate, the Company
recognized a gain of $240,785 (3% of total revenues) as a result of the
transactions for the nine months ended December 31, 1997. During the nine
months ended December 31, 1996, the Company recognized a gain of $2,078,661
(which represented 26% of total December 1996 revenues) form the sale of 600,000
shares of INSCI common stock.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The schedule below sets forth the Company's cash flow activities for the nine
months ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
DECEMBER 31,
1997 1996
<S> <C> <C>
Operating activities $ (392,000) $ (2,114,000)
Investing activities (209,000) 2,048,000
Financing activities 47,000 (1,105,000)
Decrease in cash and cash equivalents $ (554,000) $ (1,171,000)
</TABLE>
In the nine month period ended December 31, 1997, the Company used net cash
of approximately $392,000 for operating activities. The net use of cash was
attributable in part to an increase in inventory of approximately $163,000 as
the Company prepared for the 1997 earnings season (which extends from January
through March 1998). In addition, accounts receivable increased as a result of
business created by the opportunity to provide printing services to ten new
clients during the quarter ended December 31, 1997.
Net cash used for investing activities during the nine months ended
December 31, 1997 of approximately $209,000 was a direct result of key capital
expenditures of approximately $511,000 made by management as it continued to
invest in improving the Company's infrastructure. The net cash used by capital
expenditures was offset by proceeds of approximately $280,000 generated by the
sale of INSCI Corp. stock.
In November 1997, the Company entered into a two year secured credit
arrangement with MTB Bank (the "Bank"). Under the credit arrangement, IMTECH
can borrow up to 80% of eligible accounts receivable and 35% of eligible paper
inventory (up to a maximum of $50,000), both of which in the aggregate cannot
exceed a total of $1,500,000 (including $250,000 in outstanding letters of
credit) at any one time. The credit facility has provided a key source of
working capital to the Company, and as a result, total borrowings under the
credit arrangement of approximately $625,000 attributed in part to the net cash
provided by financing activities of approximately $47,000 for the nine months
ended December 31, 1997. The cash provided by the bank advances under the
credit arrangement were offset by repayments of obligations under both capital
leases and long-term debt.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
At December 31, 1997, the Company had a working capital deficiency of
approximately $684,000 as compared to a working capital surplus of approximately
$217,000 at March 31, 1997.
In January 1998, the Company generated working capital through sources such
as loans and the sale of INSCI Corp. common stock. In addition, the Company
filed a Form S-3 Registration Statement in accordance with the Securities Act of
1933 on December 23, 1997 (amended on January 14, 1998). The statement covers
the subsequent resale or offer for sale of all of the Company's outstanding
Class A Common stock (not eligible under Rule 144) and all other shares issuable
upon exercise or conversion of certain options, warrants, convertible debt and
preferred stock. Upon exercise of any options or warrants covered in the
registration, the Company will receive proceeds to be used for working capital
purposes.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NEW ACCOUNTING STANDARDS
During the third quarter of fiscal year ended March 31, 1998, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share". Under SFAS No. 128 public companies and entities with complex
capital structures are required to present basic and diluted EPS on the face of
the income statement. SFAS No. 128 replaces the presentation of primary EPS
with a presentation of basic EPS and, if applicable, diluted EPS. Basic EPS
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
and the resulting additional common shares are dilutive (their inclusion
decreases the amount of EPS).
INFLATION
The Company has not experienced significant increases in the prices of
materials or in the payment of operating expenses as a result of inflation.
Although inflation has not been a significant factor to date, there can be no
assurances that it will not be in the future.
YEAR 2000 COMPUTER SOFTWARE CONVERSION
The Company relies on numerous computer programs in its day to day
business. Older computer programs use only two digits to identify a year in its
date field. As a result, when the Company has to identify the year 2000, the
computer will think its means the year 1900 and the operation attempting to be
performed may fail or crash thus resulting in the potential interference in the
operations of the Company's business. The Company has formulated plans to
safeguard against the Year 2000 conversion problem. The cost of the
implementation of the Year 2000 safeguards will not be material to the Company.
19
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1994, IMTECH received correspondence from the U.S. Department of
Labor ("DOL") stating their intent to penalize the Company in connection with
their investigation of past IMTECH employee benefit plans. The DOL determined
that for certain plan years in question, the Company did not file the proper
financial information required. In October 1997, the DOL assessed the Company
with a penalty of $25,000 as a result of their findings. The penalty is payable
in twelve monthly installments of $2,083 through November 1998.
In November 1995, the Company entered into a three year service agreement
with Corporate Relations Group, Inc. ("CRG"), whereby CRG was to provide IMTECH
with promotional and brokerage communication services. As consideration for
their services, IMTECH was to pay CRG the sum of $300,000 or 171,000 shares of
the Company's free trading Class A common stock plus 500,000 options to purchase
500,000 shares of Class A common stock at exercise prices ranging from $1.75 to
$3.06 per share for a period of five years. The Company elected to pay CRG by
issuing 171,000 shares of Class A common stock. Initially, the Company
delivered to CRG 92,250 shares of the freely traded Class A common stock which
IMTECH borrowed from a number of shareholders. The Company agreed to repay the
shareholders by making interest payments at a rate of 10% per annum in addition
to returning the borrowed shares plus one additional share of Class A common
stock for each ten shares of borrowed stock (an aggregate of 9,250 additional
shares). The Company further agreed to grant cost free registration rights to
each lender for the additional shares as a result of the loan transaction. The
balance of the 78,750 shares were not remitted to CRG. CRG asserted a claim for
the balance of the shares. The Company has disputed the claim based upon the
position that CRG did not perform under the provisions of the service contract.
The Company is currently considering instituting legal action, in the state of
Florida based upon the jurisdiction which was recited in the agreement, to
recover the stock and seek punitive damages from CRG.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
[a] EXHIBITS
No exhibits are being filed with this report.
[b] REPORTS ON FORM 8-K
During the period between October 1, 1997 and December 31, 1997, the
Company filed with the Commission reports on Form 8-K as follows:
1) A report Form 8-K, dated November 13, 1997, was filed with the
Commission announcing the execution of an accounts receivable
financing agreement between the Company and MTB Bank.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INFORMATION MANAGEMENT TECHNOLOGIES
CORPORATION
By: /s/ Joseph A. Gitto, Jr.
-----------------------------
JOSEPH A. GITTO JR.,
PRESIDENT AND CHIEF FINANCIAL OFFICER
DATED FEBRUARY 13, 1998
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000824578
<NAME> INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 675,262
<SECURITIES> 0
<RECEIVABLES> 1,825,368
<ALLOWANCES> 79,158
<INVENTORY> 444,817
<CURRENT-ASSETS> 3,388,419
<PP&E> 5,123,896
<DEPRECIATION> 2,135,385
<TOTAL-ASSETS> 7,982,458
<CURRENT-LIABILITIES> 4,072,415
<BONDS> 874,729
2,727,240
0
<COMMON> 223,182
<OTHER-SE> (597,940)
<TOTAL-LIABILITY-AND-EQUITY> 7,982,458
<SALES> 7,215,462
<TOTAL-REVENUES> 7,215,462
<CGS> 5,281,416
<TOTAL-COSTS> 5,281,416
<OTHER-EXPENSES> 2,516,524
<LOSS-PROVISION> 51,183
<INTEREST-EXPENSE> 444,444
<INCOME-PRETAX> (1,207,473)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,207,473)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,207,473)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
